April 5, 2013 / 7:46 AM / 5 years ago

Kyrgyzstan starts sale of disputed gold deposit

* Kyrgyzstan to sell Jerooy despite investor’s claims

* Accepting bids until May 10

By Olga Dzyubenko

BISHKEK, April 5 (Reuters) - Kyrgyzstan has begun the sale of Jerooy, its second-largest gold deposit, turning a deaf ear to a $400 million arbitration claim filed by a Kazakh investor alleging its licence to develop the field was expropriated illegally.

The government set a starting price of $300 million for the rights of subsoil use at Jerooy and the state geology agency will accept bids until 1700 local time on May 10, said a tender announcement published in official newspapers.

Jerooy, discovered in Soviet times, lies about 3,000 metres above sea level in the northern Talas region. It has drawn several investors since the collapse of the Soviet Union in 1991 but has not been developed.

Kyrgyz Prime Minister Zhantoro Satybaldiyev told Reuters in a recent interview that Jerooy was estimated to hold up to 100 tonnes of gold. Data from state gold company Kyrgyzaltyn show that Jerooy holds almost 84 tonnes of gold and about 13 tonnes of silver.

Kyrgyzstan, a Central Asian nation of 5.5 million which borders China and hosts both U.S. and Russian military air bases, has seen two presidents toppled by violent revolts since 2005 and investors have largely bypassed its reserves of gold, copper, mercury, rare earth metals and coal.

Satybaldiyev, who headed a coalition government last September on pledges to alleviate widespread poverty, said he expects Jerooy’s sale to spur investor interest in the resource-rich but politically wobbly nation.

However, the long-awaited tender is soured by the $400 million arbitration claim filed by Kazakh company Visor Holding against the Kyrgyz government in the United States last month.

Visor held a 60 percent stake in a joint venture with Kyrgyzaltyn that was working at Jerooy. It lost its licence in 2010 after the authorities said it had failed to begin gold production, but the Kazakh company says the licence was expropriated illegally.

A senior Visor Holding manager who declined to be named said the company made investments worth tens of millions of dollars in Jerooy before its licence was “improperly revoked”.

In a written answer to questions from Reuters, the company said that the potential winner of the government’s proposed auction will obtain a mining licence only and “will still face numerous obstacles in the form of property rights related to development of the project”.

Kyrgyzstan’s State Geology Agency on Thursday described the $400 million claim filed by Visor as “sheer blackmail”.

The government is also embroiled in a bitter dispute with Canada’s Centerra Gold, which develops the nation’s largest gold deposit, Kumtor.

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